Fee structure of Pulchowk Engineering College

Duncker & Humblot


The liability of directors and officers as behavior control in American law

A role model for German management board and supervisory board liability?

Writings on International Law, Vol. 227


Additional information

Book details

978-3-428-15459-3 (print edition)
D&H 2021
LAW 2021
Corporate governance: role & responsibilities of boards & directors
Company law
Company & business open


€ 138.00 (incl. Local VAT if applicable)
€ 107.90 (incl. Local VAT if applicable)


»Liability as Incentive. U.S. Director and Officer Liability as a Model for Germany? " director and officer liability - an intolerable threat? This verdict too often prevents a closer analysis. But is it a myth? How does the specter of liability impact leadership and oversight at U.S. companies? And how could the U.S. experience inform, e.g., experiments with the business judgment rule, class actions and corporate criminal liability in Germany? The author, a New York corporate lawyer, offers surprising findings ranging from corporate to criminal law that German corporate governance might do well to heed.

About The Author

S. Kathrin Schwesinger is a U.S. American lawyer who advises strategic and financial investors on M&A and corporate governance issues at White & Case LLP in New York. In 2000 she went to the American East Coast for a school year abroad, where she has lived ever since. She completed her academic training at Middlebury College (B.A.) and Columbia Law School (J.D.). She began her professional career in 2009 as a lawyer in New York with an international law firm. Under the influence of the financial crisis at the time, her doctoral thesis (University of Bayreuth) examines the extent to which personal liability can encourage corporate managers to improve corporate governance. Kathrin Schwesinger practices law in the New York office of White & Case LLP, where she advises both private equity clients and public companies in a broad range of industries on M&A and corporate governance matters. In 2000, she left Germany for a high school year abroad on the U.S. east coast, where she has lived ever since. She earned her B.A. at Middlebury College and her J.D. at Columbia Law School before launching into her career as a corporate lawyer in 2009 at a large international law firm in New York. Inspired by the financial crisis that marked the start of her career, her doctoral dissertation (University of Bayreuth) examines how personal liability can incentivize directors and officers to improve corporate governance.

Table of Contents

Section TitlepageActionPrice
Table of Contents8
List of abbreviations16
Preliminary remark: the term "director"22
1st part: introduction25
A. What is corporate governance?25
B. Objective of Liability26
C. Liability as an instrument of corporate governance27
D. Relevance of American corporate governance for Germany29
E. Liability culture in the USA33
F. Fundamental differences between Germany and the USA37
Part 2: US legal background to corporate governance40
A. Legal Basis of Corporate Governance in American Law40
I. State Law41
1. Principles of company law41
2. Significance of the State of Delaware42
II. Federal Law45
III. Articles of Association of the Corporation48
B. Role of the judiciary48
C. Comparability of corporate structures in Germany and the USA50
I. The corporation versus the stock corporation50
II. Directors and officers compared to the management board and the supervisory board51
Part 3: Obligations in the context of corporate governance55
A. Standalone Obligations (Delaware State Company Law)55
I. Duty of Care57
II. Duty of Loyalty58
III. Applicability to officers62
IV. Independent duties of the board of directors and the supervisory board62
V. Interim result: Comparison of independent duties in Delaware and Germany64
B. Organizational and direct obligations towards third parties68
I. Obligations to shareholders69
1. Liability as "Control Person"71
2. Securities Act Section 1173
3. Securities Act Section 1275
4. Securities Act Section 17‍ (a)76
5. Exchange Act Section 10‍ (b) and Rule 10b-577
a) The fraud-on-the-market presumption79
b) Scienter80
c) Insider Trading82
6. Exchange Act Section 1883
7. Sarbanes-Oxley Act (elements of civil law)83
a) Certification of business reports (SOX Section 302)86
b) Audit Committee94
8. Obligations towards shareholders in Germany97
a) Obligations under capital market law and liability towards shareholders in Germany97
b) Differences to the American capital market obligations103
aa) Limited external liability104
bb) Differences in the scope of damage105
cc) Rejection of the fraud-on-the-market presumption109
9. Interim result: Comparison of the liability priorities towards shareholders in the USA and Germany113
10. The special case of ERISA liability114
II. Obligations towards other third parties in the USA and Germany118
4th part: Judicial assessment of compliance with corporate law obligations121
A. The Business Judgment Rule122
I. Application of the Business Judgment Rule122
II. Establishment of the Business Judgment Rule in Delaware125
III. Importance of the Business Judgment Rule to Lawsuits Against Directors in Delaware127
IV. The so-called Business Judgment Rule in Germany (Section 93 Paragraph 1 Sentence 2)129
1. Degree of fault131
2. Objective / subjective assessment of the company's interests133
3. The need for good faith136
4. Definition of "good of society"137
5. Relevance of the consequences of a business decision139
6. Legal Restrictions140
7. Decisions vs. "actions"142
8. Distribution of presentation and burden of proof144
V. Interim result: Comparison of the Business Judgment Rule with Section 93 (1) Sentence 2 AktG148
B. Entire Fairness149
I. Entire Fairness in Controlled Transactions150
II. Dealing with Conflicts of Interest in Germany154
1. No special rule for judicial consideration in the event of a conflict of interest155
2. Assessment of conflicts of interest in relation to entrepreneurial discretion in Germany156
III. Interim result: Comparison of the German legal situation with the Entire Fairness Standard in Delaware156
C. Enhanced Scrutiny157
I. Hostile Takeovers and Takeover Defenses160
II. Amicable Takeovers and Revlon163
III. Other uses of Enhanced Scrutiny165
IV. Assessment of the actions of the management board and the supervisory board in takeover situations in Germany166
1. Obligations in the takeover situation166
2. Possible defense measures169
V. Interim result: Dealing with takeover situations in Delaware and Germany172
D. Conclusion: Differences in the judicial assessment of company law compliance in Delaware and Germany175
Part 5: Civil law process options for enforcing internal and external liability176
A. Internal civil liability enforced by the company176
I. The corporation as plaintiff in Delaware177
II. Obligation of German bodies to pursue claims177
III. Intermediate result: Comparison of the directly pursued internal liability in Delaware and Germany178
B. Civil internal and external liability enforced by the shareholders in the context of shareholder representative actions179
I. The Derivative Action180
1. The demand182
2. Need for Demand183
3. Demand futility184
II. The class action186
1. Securities Class Actions (Federal Law)189
a) Enron and WorldCom as exceptions191
2. M&A Class Actions (State Law)193
III. Criticism and further development of the shareholder representative actions196
1. Criticism of shareholder representative actions197
a) Plaintiffs' Attorneys197
b) The Professional Plaintiff201
c) Incentivization of directors and officers contrary to the interests of the company202
d) Disclosure-only settlements for non-valuable M&A class actions205
2. Reforms of Shareholder Representative Actions208
a) Legal reforms of the Securities Class Actions208
b) Regulation of M&A Class Actions by the courts211
aa) Determination of legal fees211
bb) Rejection of disclosure-only settlements214
cc) Selection of plaintiffs216
c) Restriction of derivative and M&A class actions via Bylaws217
aa) Mandatory arbitration217
bb) Determination of the place of jurisdiction220
cc) Shifting legal fees223
3. Developments in shareholder representative actions224
IV. Comparable legal action options for shareholders in Germany228
1. Shareholder action in Germany pursuant to Section 148 of the German Stock Corporation Act230
a) Other forms of shareholder action231
b) Practical applicability of Section 148 AktG233
c) Conceptual and practical problems of the shareholders' lawsuit in accordance with Section 148 of the German Stock Corporation Act235
d) Interim result: comparison of the shareholder action according to § 148 AktG with the derivative action in Delaware240
2. Model proceedings as an alternative to class action in Germany241
a) Development of the KapMuG242
b) Investor sample procedure according to KapMuG244
c) Criticism of the KapMuG246
aa) Conceptual problems of the cost and fee structure248
bb) Difficulty in making comparisons250
d) The validity of the arguments against the model of class action252
e) Interim result: Class Actions and alternatives to the KapMuG in Germany258
V. Conclusion: Shareholder lawsuits as an instrument for behavior control in the USA and Germany259
C. Internal civil liability in bankruptcy enforced by creditors260
I. Practical Impact of Corporate Bankruptcy on Directors and Officers Liability260
II. Enforcement of claims by creditors in Germany262
Part 6: Enforcement of civil law claims and the imposition of administrative sanctions by state authorities264
A. Alternative consequences of sanctions using the example of the debarment of directors and officers by a federal agency265
B. Possibilities for sanctions by the Federal Agencies using the example of the SEC266
I. SEC Administrative Proceedings268
II. Debarments by the SEC271
III. Clawbacks from discretionary compensation and investment income273
C. The SEC compared to BaFin's securities supervision277
D. Conclusion: Special competencies of state authorities as a useful means of behavior control in the USA and Germany281
Part 7: Penal sanctioning as an instrument of corporate governance282
A. Relevant basics of American white collar crime286
I. The role of the prosecutor287
II. Entity Liability294
1. Consequences of Entity Liability for Corporations296
2. Consequences of Entity Liability for Individuals302
III. Consequences of Personal Prosecution for Directors and Officers305
B. Criminally enforced third-party protection through corporate supervision and management307
I. Prevention of public offenses of the company (Responsible Corporate Officer Doctrine)308
1. Applying the Responsible Corporate Officer Doctrine312
a) The Responsible Corporate Officer Doctrine in Jurisprudence (FDCA)313
aa) Basic case law314
bb) Current case law316
cc) Debarment320
b) The Responsible Corporate Officer Doctrine codified (environmental law)322
c) The Responsible Corporate Officer Doctrine in other areas of law325
2. Interpretations of the Responsible Corporate Officer Doctrine327
a) No-fault sanctioning for the actions of others328
b) Violation of a contractual obligation333
c) Sanctioning for negligent own omission334
3. The Responsible Corporate Officer Doctrine as an Instrument of Corporate Governance336
a) Debarment as a corporate governance instrument339
b) Comparable instruments in capital market law340
c) Use of the Responsible Corporate Officer Doctrine341
d) No extension to civil law345
II. Preventing the integrity of the capital market from being jeopardized347
1. Certification of financial information in annual reports (SOX Section 906)348
2. Section 10‍ (b) and Securities Fraud351
3. Insider Trading355
III. Prevention of market distorting behavior355
1. FCPA356
2. Antitrust criminal offenses364
IV. Comparable legal instruments for third party protection in Germany371
1. Civil law liability based on violated organizational obligations374
a) The building materials judgment of the BGH376
b) Ambiguity regarding the requirements for the position of the guarantor379
c) Stricter liability in producer liability381
d) Relevant Protection Laws382
e) Deviations in competition law383
f) Recent jurisprudence: position of guarantor only under special circumstances384
2. Sanctioning under fines on the basis of violated supervisory duties386
3. Criminal sanctioning as an organ or representative of society390
a) Sanctioning according to § 14 StGB390
b) Sanctioning according to § 13 StGB394
c) Criminal sanctioning of the compliance officer398
aa) Basis for the judgment of the 5th criminal panel on compliance officer399
bb) Elaboration of the sanctions for the Compliance Officer based on the assumptions of the 5th Criminal Senate400
cc) Obligation to avert profit is not tenable under company law402
4. Specific norms of product stewardship405
a) Medicines Act405
b) Medical Devices Act407
c) Food ‍, consumer goods and feed code407
d) Product Safety Act410
5. Criticism of the German legal situation411
a) Predictability of the facts or their consequences in criminal and tort law413
b) No differentiation of the facts in criminal law and law on fines413
c) Weighing up general criminal liability and prosecuting only certain, special dangers416
d) Extension to lower corporate levels, particularly in criminal law417
e) The corporate bodies as default guarantors in tort law419
V. Interim result: The importance of criminal corporate governance liability for third-party protection420
1. Liability and sanctions outside of corporate governance remain unaffected421
2. Sensible approaches to the application and revision of criminal law for third-party protection through corporate governance improvements423
C. Sanctioning of unfaithful conduct425
I. Honest Services Fraud and the Skilling Decision426
II. Infidelity according to § 266 StGB431
1. Fundamental differentiation from honest services fraud432
2. Relevant elements of § 266 StGB for bodies of stock corporations433
a) Necessity of a "serious" breach of duty in business decisions434
b) Willfulness with regard to business decisions439
3. Application of Section 266 of the Criminal Code in the case of decisions by organs441
III. Comparison of infidelity and honest services fraud as the criminal enforcement of corporate loyalty obligations443
1. Honest Services Fraud and infidelity as partially congruent facts443
2. Honest Services Fraud and breach of trust as a substitute for a lack of civil law action444
IV. Interim result: Suitability of criminal law for the prosecution of unfaithful behavior446
D. Conclusion: Sensible use of criminal law to improve corporate governance448
I. Role of corporate criminal law449
II. Sensible incentives to prevent legal violations452
III. Sensible incentives to prevent breaches of duty of loyalty455
8th part: American and German impulses for sensible corporate governance liability for behavior control457
American Jurisprudence Directory462
Keyword index532